On the week of September 16th I was with my family on a Disney Halloween themed cruise ship, enjoying the all encompassing experience of being out in the middle of the ocean for four nights. I have to admit, I am not a boat person and this tripped confirmed it! We had rough seas going in and out of Port Canaveral and my eldest son, Grant, and I didn’t take well to the increase in motion. However, Disney being Disney, they put on a heck of a cruise with great entertainment and food. Disney magic aside, there’s a wow factor to being out at sea.
Breathing in the salty air and taking in beautiful views got me wondering, ‘Why don’t companies hold business events on cruise ships anymore?’.
Though, granted, not many corporate seminars or international meetings are held on Disney ships, conferences on cruises were a big thing for a while for business owners who could afford it.
They’ve fizzled out in recent years, maybe in part due to the fear that a cruise ship is too extravagant to write off as a business expense. But is it?
The law hasn’t changed since 1982
In 1982 law stated that you could deduct no more than $2,000 of the expenses incurred by business events held on a cruise ship - and to note: the IRS considers all ships at sail a cruise ship.
You can imagine why deductibility was strict. The IRS was cautious not to give out refunds for vacations claiming to be business trips. To write off the $2,000, you need to make sure that you can show the expense had a direct benefit to your business.
And the law hasn’t evolved - not even with inflation.
You’re still only able to claim $2,000 on your trip, and that’s not a whole lot when you consider the amount it’ll set you back to have 50-100 people aboard.
Doesn’t seem worth it, right? You might as well stay warm and dry on land and hire a conference center room.
But there’s more to these deductions than meets the eye. There are two different approaches you could take to maximize deductibility. Let’s dig a little deeper into your options.
Option 1: Take the trip as planned, and make the most of your deductions
Let’s use the Disney cruise as an example. To qualify for a deduction on the Disney Business Cruise, you’d need to meet these requirements:
- The event directly benefits your business or trade.
- The cruise ship is registered in the US.
- All of the ports on route are within the US or are in possession of the US.
- You attach a signed statement to your Tax return that includes a breakdown of the total days on the cruise, the hours you spent carrying out business activities and proof of those activities.
But don’t forget, involved in a trip like this are:
Extra travel expenses: Unless you live right next door to the port from which you’re embarking, you’re going to need to either drive or fly to get there. You can deduct on these, as they’re considered separate travel expenses from the cruise itself.
Food and drink: If food and drink aren’t included in the cruise invoice and are separately sought, the standard business deduction rules apply.
Look into the per diem rule...
As we mentioned earlier, all ports have to be within the US to meet the requirements of the $2,000 deduction. You can’t deduct expenses for a business cruise that’s held outside of the US.
That being said, if you’re holding or attending a business conference or similar event on a cruise outside of the US, you may be able to deduct under the Per Diem rule. This deduction allows you to take a standard amount determined by the IRS on an annual basis for your lodging, food, and incidentals without having to keep receipts.
For example, if the standard per diem amount for lodging is $200 a night but you only spend $50 on a hostel, then it’d better to take the standard amount for the larger deduction.
For more information on how the Per Diem rule might benefit you (in this situation, and in others where you’re traveling for work) here’s a video I recorded on it. You can also find foreign per diem rates by location through this link.
Option 2: You use the cruise to travel to your event location
Using our Disney Business Cruise as an example again, let’s say you still sail the seas, but hold your event on land.
This way you can:
- Maximize deductions on the event - as you’ll likely be holding it in a hotel or conference center.
- Write off the travel expenses to get to the cruise
- Possibly even write off the full cost of the cruise, if your expenses onboard are less than the 2019 daily luxury water limits.
So you don’t get to hold your event in the middle of the ocean, but you still get the experience the magic none the less - and you may find you can save more than you would with the $2,000 deduction on the cruise ship.
As with all deductions, we strongly advise you to have a chat with us. If you want to go down the cruise route, we fully support you, but want to make sure you’re maximizing those deductions and staying in compliance. Our expertise is accessible to you for exactly that reason.
And hey, if we’ve given you an idea for an innovative new Disney-themed business cruise, be sure to give us a call. We’ll be there!